Which function is performed by Financial Markets by linking the savers and investors and by mobilizing funds available for investment into the most productive investment opportunity?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Allocative function
Option (1) Allocative function — Correct. A financial market links the savers and the investors by mobilising funds between them. In doing so it performs the allocative function: it directs the funds available for investment into the most productive investment opportunity. The question repeats these words.
Option (2) Intermediate function — Incorrect. There is no function by this name.
Option (3) Financial function — Incorrect. There is no function by this name.
Option (4) Productive function — Incorrect. The funds go to the most productive use, but the function itself is called allocative.
Note: Although the chapter ‘Financial Markets’ was dropped from the NCERT textbooks during rationalisation, it has stayed in the NTA syllabus every year since 2022, except for 2025, and it is part of the syllabus again from 2026. This question is therefore based on the pre-rationalised NCERT, an extract from which is given below. NCERT (Pre-rationalised Edition): “A business is a part of an economic system that consists of two main sectors – households which save funds and business firms which invest these funds. A financial market helps to link the savers and the investors by mobilizing funds between them. In doing so it performs what is known as an allocative function. It allocates or directs funds available for investment into their most productive investment opportunity. …” |